On 25th June 2021 the Department of Economics and Finance held the Third Brunel Banking Conference (online), this year entitled "Bank regulation, bank performance and the wider economy." The conference was organised by Professor E Philip Davis, Dr Dilly Karim and Dr Ka Kei Chan. With contributions from some of the world’s leading authorities on bank behaviour, asset pricing and financial regulation, this conference provided a critical overview of regulatory policy, bank risk, bank behaviour and their wider financial and economic consequences.
This high-level conference (along with its predecessors in 2018 and 2019) underlined the development of Brunel as a centre of research and teaching in banking economics, the latter being reflected in the recent launch of the Banking and Finance BSc to complement the long standing Banking and Finance MSc, both of which are proving highly popular with students. We also have instituted a Brunel Banking Research Group comprised of the organisers, Dr Apostolos Fasianos and Dr Tomoe Moore, which builds from our research and policy work in fields such as macroprudential policy, bank competition and risk, and pension fund regulation.
The conference speakers included senior officials from key central banks, namely Michael Straughan of the Bank of England, Maria Nieto of the Bank of Spain and John Fell from the European Central Bank; an expert from the financial services industry, Yael Selfin of KPMG; world-leading academics, that is Professor David Miles of Imperial College, Professor Charles Goodhart of LSE and Professor Thorsten Beck of City University; besides Brunel Professor of Banking and Finance E Philip Davis and Brunel PhD student Yuli Lai. Sessions were chaired by Davis, Karim, Chan and the Head of Brunel’s Economics and Finance Department, Professor Jim Steeley. The conference was introduced by Brunel’s Vice Provost – Research, Professor Geoff Rodgers.
The conference was organised under four headings; Bank Regulation and Bank Behaviour (Beck, Goodhart and Selfin), Bank Competition and Risk (Straughan and Davis), Bank information and Financial Stability (Fell and Lai) and Bank Risks and Wider Economic Developments (Nieto and Miles).
The conference presentations raised a rich range of questions for future research and policy consideration, including the following:
- Impact of supervision on bank behaviour - How does the scope of supervision impact on the distribution of lending to companies? (Beck)
- Issues of incentives – Should limited liability be reduced to improve incentives of bank managers and controlling investors? (Goodhart) What are the incentives underlying sovereign bond holdings by banks, and related risks? (Nieto)
- Scope of market discipline – Are bank share price responses to news asymmetric, thus “punishing” bad news, and thus provide an indicator for regulators? (Fell)
- Banks and the wider economy – To what extent do falls in real long rates account for house price trends – how sustainable are current low long real rates? (Miles)
- Accounting issues – Are regulators and investors well served by auditors looking at risky banks? (Goodhart) Do banks smooth income via securities gains and losses, thus giving a false impression of their health? (Lai)
- Bank market structure and bank behaviour – What is the impact of bank competition on risk taking? (Straughan) Does competition affect the response of banks to macroprudential policy? (Davis) What factors explain recent patterns of bank profitability? (Selfin)
- A number of the above posed policy questions for bank regulators such as:
- the need to understand banks’ response to macroprudential policy and the optimal configuration of macroprudential policy
- the need to focus on market structure and competition in evaluating risk
- the extent to which “market discipline” can be relied upon, given issues in disclosure and patterns of share price determination
- whether corporate governance of banks needs radical reform
- how to interpret patterns of domestic and foreign sovereign debt holdings by banks
- whether the scope of regulation has undesirable side effects on patterns of economic activity
- whether current house price levels are sustainable (low long real rates also have important implications for pension funds).
We note finally that the experience of hosting the conference in Zoom was valuable – delegate numbers were 30 or more during each session; the discussion was smooth and was conducted in a collegiate and orderly manner; the atmosphere was equally friendly and enjoyable as in a typical conference. Although virtual platforms still have their limitations, the limitations seem to have little impact in people’s willingness to contribute their opinions and comments on the presented topics.
Links to the conference presentations are provided below:
(1) Bank regulation and Bank Behaviour
Thorsten Beck (Professor of Banking & Finance, Cass Business School, City University), “Out with the New, In with the Old? Bank Supervision and the Composition of Firm Investment”
Charles Goodhart (Emeritus Professor of Banking and Finance, London School of Economics), “On Moral Hazard: The Moral Hazard of Limited Liability”
Yael Selfin (Chief Economist, KPMG UK), “European banks’ profitability: plus ça change?”
(2) Bank Competition and Risk
Michael Straughan (Senior Manager / Technical Specialist, PRA, Bank of England), “The Link Between bank competition and risk: two views for policy making”
E Philip Davis (Professor of Banking & Finance, Brunel University), “Macroprudential Policy, Bank Competition and Bank Risk in East Asia”
(3) Bank information and Financial Stability
John Fell (Deputy Director General, Macroprudential Policy, European Central Bank), “Asymmetries in euro area bank stock price responses to news: bad luck or bad preparation?”
Yuli Lai (Brunel University – supervisors Dilly Karim and Siming Liu) – “Earnings management using available for sale securities: Evidence from OECD banks”
(4) Bank Risks and Wider Economic Developments
Maria Nieto (Senior Advisor, Bank of Spain), “Sovereign Portfolio Composition and Bank Risk”
David Miles (Professor of Financial Economics at Imperial College Business School), “Very low interest rates and very high house prices – how close is the link?”
Previous Brunel Banking Conference:
Link for report on the Second Brunel Banking Conference
Link for report on the First Brunel Banking Conference